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September 10, 2012

Soros: Germany Should Lead Eurozone or Leave It

Berlin must boost growth over austerity or depression will result, says financier

George Soros at Davos. (Photo: AP)

Billionaire financier George Soros said that Germany must either lead the eurozone through its current crisis or get out of the way, and that its insistence on austerity measures, if not checked and replaced by growth strategies, will push the region into a depression.

Reuters reported Saturday that Soros made the assessment of Germany’s current stance in a television interview in Vienna, in which he also said the eurozone would be better off without Germany and its Bundesbank’s insistence on an austerity-only strategy for weaker nations in the bloc.

Soros was quoted saying, "Germany should either lead in developing a growth policy, political union and burden-sharing, accept the cost of leadership, or leave through an amicable arrangement."

If Berlin continued to insist on strict austerity instead of providing more options to grow weaker economies, he said, Europe would be plunged into an extended depression and the joint currency would fail in a scenario fraught with bad feeling. However, a German departure could leave the eurozone more competitive in exports and able to find lower borrowing costs with a weaker, France-led "Latin" euro.

Germany has thus far supported the European Central Bank’s (ECB) newly announced policy of unlimited purchases of short-maturity bonds to shore up weaker countries like Spain and Italy, which have been battling rising yields that threaten their survival. However, Germany’s Bundesbank has not, and has been outspoken on the subject.

Others in Germany have also voiced their opposition to any leniency in dealing with what they see as “slacker” nations, and on Wednesday, Bloomberg reported, the country’s Constitutional Court will decide a challenge to the European Stability Mechanism (ESM), including a fast-tracked request for an injunction against it by Peter Gauweiler, a Bavarian lawmaker in Chancellor Angela Merkel’s ruling coalition.

Gauweiler’s website said the ECB’s new bond-buying pledge has “fundamentally changed” the situation and the ECB must withdraw its “undemocratic, self-appointed right” to become Europe’s “hyper-rescue fund.”

Soros, for his part, seems to approve of the plan, saying, "It's a more dramatic move," and that it would probably buy Europe "a longer period than previous measures that were taken." But it didn’t go far enough; instead, what Europe really needs is some kind of common eurozone bond, which Germany opposes. He added, "You need a growth program, and that is again not what Germany is imposing on Europe."

Soros compared the present austerity obsession to the financial crisis of 1982. Lenders pushed austerity on debtor countries then, too. “It was the lost decade for Latin America and something very similar is happening now in the euro situation, where Germany is actually playing the same role within the euro as the IMF did within the global financial system," he said in the report.

He added, "This policy is pushing Europe into a depression which is going to last 5 or 10 years." This would intensify the slowing of global economic growth, he said, adding, “I think this whole process is reinforcing the deflationary tendencies in the world, so Germany itself is slowing down and will stop growing. China is actually destined for a hard landing, which will reinforce the global tendency towards depression.”